Remember, just few months back everyone was speculating over commodities - Analysts at Goldman-Sachs forecasted price of oil barrel could reach $ 200, even oil baron T. Boone Pickens forecasted $ 150 (Pickens also spent millions of dollar to promote his oil independence plan)
And today oil is below $ 75, and it’s not only oil. Copper dipped to $ 2.15, wheat neared $ 550.
Does it help the consumers? Well, at least for short term. Especially decline in energy prices brings tax cut effect estimated up to $ 100 billion. But as prices fall, conservation efforts also come to halt and so does alternative energy development projects. It is interesting to see how alternative energy index fund collapsed with crude price decline.
Bizarre Mechanism : Central banks all over the world are pouring liquidity in the market. That should increase the inflation. Then how the prices are coming down?
The latest commodity price decline is another classical example of free market mechanism. For example as oil prices peaked demand in developing markets reduced since governments can no longer afford subsidies. Even in United States demand reduced. On the other hand, supply increased to OPEC increased production. Decreased demand and increased supply brought prices down.
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